Exactly 97 years ago this week, Henry Luce and Brit Hadden left their jobs at the Baltimore Daily News, raised $86k from family and friends, and formed Time Inc. Time magazine was launched four months later, followed in succeeding decades by Fortune, Life, Sports Illustrated, Money, People, Entertainment Weekly, InStyle and Real Simple.
It became a unique global media business whose gender-neutral weeklies arguably defined the role of magazines in the twentieth century, before Time Inc started acquiring the niche monthlies that brought them into competition with most other publishers. That was before it was battered by M&A, including mergers with Warner Brothers and AOL, divestment by Time Warner and the 2018 acquisition by Meredith Corp.
Meredith was the Iowa-based magazines and TV company which had quietly been upstaging its big city competitors, not least with the long-term success of perhaps America’s most profitable monthly Better Homes & Gardens. It had become an unrivalled specialist in food, family and homes media.
Its executives beamed with the $2.8bn deal that made them the largest magazine publisher in the US. The public lowering of the Time Inc signage in Manhattan seemed to symbolise how the New York publishing aristocrats had been bested by the out-of-towners from Des Moines. To complete the symbolism, Meredith sold off most of the magazines that had once characterised Time Inc: Time, Fortune, Sports Illustrated and Money. And it completed the protracted sale of Time Inc UK (formerly IPC Media) to Epiris private equity for £110m – 10% of what Time Inc had paid in 2001.
But, in September this year, the so-steady Meredith shocked investors with the news that Time Inc was not as profitable as expected and that the enlarged company, which had been expected to make EBITDA of $800m, would now make less than $700m. Hundreds of millions of forecast magazine profit had simply not materialised.
The Meredith share price plunged 28% in a single day, having already fallen 16% in the previous nine months and angry investors filed legal claims against the company.
CEO Tom Harty tried vainly to calm fears that Meredith had bitten off more than it could chew: “It took longer than expected to turn around advertising performance. Additionally, the number of low-margin magazine subscriptions we encountered inside the legacy Time Inc. brands were more than anticipated…taken longer than we initially expected to elevate the print and digital performance of the Time Inc assets.”
One analyst abruptly dismissed the reassurance: “It’s clear Meredith didn’t know what they were buying with Time Inc.”
What always looked a pricey deal has now been squeezed by lower than expected proceeds from those magazine divestments. Since the disposals took more than 18 months to complete, the whole process may have disrupted post-acquisition integration of Time Inc as well as compounding the financial damage. While it was unconnected, the retirement of chairman Steve Lacey may also have diluted a highly effective Meredith partnership with Harty at the time when it was most needed. Quite a reversal for what has long been one of the most admired media companies in the US.
Across the Atlantic, the former Time Inc UK (now TI Media) is being sold by a relieved private equity firm which, having exploited Meredith’s urgent determination to get rid, may have belatedly realised that a low purchase price is no substitute for a transformative strategy in a declining market. In the event, they have been able to offload the company – profitably – in less than two years. Phew.
But the buyer is happy too: Future Plc, whose share price has gained 180% in the 12 months in which Meredith’s has lost 40%.
The UK deal was announced just before Future unveiled stunning annual results. In the 12 months to end-September 2019, it increased EBITDA by 163% to £54.5m on £221.5m revenue that was up 70%. E-commerce revenue increased by 73%. Earnings per share jumped by 95%. It was a stellar performance to usher in Future’s most ambitious acquisition.
The TI Media deal means that the largest magazine-centric publishers in the US and UK are both joined by the legacy of Time Inc. Arguably, both have quite a lot to learn from each other.
Future was founded 34 years ago by TED leader Chris Anderson. It’s had a history of boom and bust and many more shaky acquisitions than Meredith. But, for five years under CEO Zillah Byng-Thorne, the listed company has delivered impressive growth through:
- A robust technology platform
- A focus on e-commerce and events
- Strong acquisition skills
- Global ambitions
In five years, Future’s market cap has jumped from a mere £30m to more than £1.3bn. After a whole wave of acquisitions, it now generates more than 55% of revenue from the US. Its buying has often looked opportunistic, taking advantage of prices sweetened by low interest rates and a soaring share price.
While the deals have helped to diversify earnings geographically and also into exhibitions, video production (with this month’s £23.5m acquisition of Barcroft Studios) and e-commerce, Future has not been afraid to acquire print publishing assets, including TI Media, and even B2B media. The CEO defends her wide-ranging acquisitions as reflecting the need for media businesses to disrupt themselves. But the deals have also shifted the balance of the business so that digital development is not suffocated by the preoccupation with print that typically obstructs the diversification of magazine publishers.
Future is building a highly versatile ‘media machine’ whose ‘technology stack’ is more than mere PR. The entire portfolio is unified by its tech and, when one of its acquired companies was seen to have a superior system, Future simply adopted that and rolled it out across the company instead. This robust approach to common proprietary systems is more than symbolic in a world where tricky acquisition ‘earn-outs’ and a low emphasis on digital have frequently led publishing companies to tolerate a multitude of incompatible systems.
Future’s tech-emphasis drives the speedy integration and exploitation of acquisitions. It’s a part of a mood that has its executives hitting the ground running in taking control of a new business. That is why, even before its own shareholders or the UK competitions regulator have approved the acquisition of TI Media, Future is already discussing the sale of brands it doesn’t want – or may not be permitted to retain. And its got a very clear strategy on the TI techbology it will retain, change or augment in order to manage its hugely expanded portfolio. The machine is ready for action.
Future has agreed to acquire the £200m-revenue former Time Inc UK for £140m, 4.9 x EBITDA. It is reasonable to think that combining the systems, management teams, some premises, and closing/selling/changing loss-making brands will eventually improve this multiple to 3 x EBITDA or less. That’s how good a deal it could be.
It couldn’t be more different for the $3bn-revenue Meredith whose on-off divestments of Sports Illustrated and Money (and the decision to keep Entertainment Weekly – as a monthly) had been early hints that the integration was not going to plan. But another contrast with Meredith’s UK counterpart may be the way that much of the former Time Inc business in New York has been managed by the executives who were already in place. That may even help to explain why it took Meredith more than 12 months to discover the extent of the trading weaknesses it announced in September.
That’s only part of the problem. Some of the former Time Inc brands perfectly fit the Meredith portfolio, including Real Simple, InStyle, Food & Wine and Southern Living. But, given the $435m in proceeds it received for Time magazine et al, Meredith has effectively paid almost $2bn for the celebrity weekly People. While this may be the most profitable magazine in the US, it has been declining in line with other weeklies and is a long way from the practical monthlies that have made the Iowa company so successful. If it hadn’t been part of Time Inc, we can assume Meredith would not have even thought of buying People.
You have to question whether the whole Time Inc deal – which Meredith had rejected a few years before – was motivated (just a little bit) by hubris and the thrill of becoming the US market leader.
But, back in the UK, Future, is also acquiring some crucially profitable TI magazines it would never normally have pursued (weekly TV listings).
Both Meredith and Future are good media operators. The UK company, for example, has plenty it can learn from Meredith which has been more focused on e-commerce and marketing services longer than most of its peers. That has been part of the secret of its success.
At a time when magazines everywhere are fighting hard to bolster revenues with ‘brand extensions’, Meredith has become a world-beater. It generates an estimated $100m of profit through multiple long-term licensing agreements with retailers, manufacturers and service providers in the US and globally. It began more than 25 years ago when Walmart started to sell Better Homes & Gardens-branded products. Today, the retail chain stocks no fewer than 3,000 BHG products in more than 4,000 stores and online, in the US, Mexico and China.
Meredith also has long-term agreements with Realogy Corp, which operates Better Homes & Gardens Real Estate. The 10-year-old network now includes 300 offices and 11,000 agents across the US, Canada, and the Bahamas. Other licensing agreements include: branded floral arrangements; Shape active-wear and sunglasses; EatingWell frozen food dishes; Real Simple products at Bed Bath & Beyond and TJ Maxx; Food & Wine for HSN; InStyle hair salons at JC Penney stores; Southern Living plant collections; and 3,000 Southern Living fashion products at Dillard’s.
Meredith is now believed to be negotiating brand licensing deals for People magazine. The company’s licensed products now account for more than $25bn of retail sales, making it second only to the mighty Disney as a global licensor.
It’s an approach that Future – which has long been a successful licensor of international magazine brands – might seek to emulate as it takes control of TI Media, especially with brands like Ideal Home, Homes & Gardens, and Wallpaper, and Country Life. There’s a lot to go for.
While the acquisition of TI may be as much a test for Future as the Time Inc parent has been for Meredith, the UK company’s recent acquisition track record is encouraging. The fact that more than 85% of TI revenues still come from print – and from the UK – highlights the real strategic opportunity for Future.
The deal may also enable the new UK market leader to show exactly how magazines can propel the large-scale diversification of special interest media. For all the talk of “media neutrality” and the development of revenues from events and e-commerce, most magazine publishers are preoccupied by… magazines. Inevitably, whether in print or digital, these “packages” of information and entertainment will become a progressively smaller part of the mix of media and services.
Reader-users of specialist media whether in boats, sports, or homes can become consumers of a wide range of services that meet their requirements for reading, viewing, shopping and inter-reaction with their peers. In any one sector, the biggest revenue earner may be e-commerce, events, licensing, digital viewing – or even a magazine. Some audiences may become global membership groups.
The opportunities call for media companies to have versatile systems that can support the specific products and services required by consumers in any given market. The TI Media portfolio of 40 established magazine brands may make the “new” £400m-revenue Future (likely to be operational early in 2020) the model for magazine-centric groups everywhere. Meredith might just be watching too.